Les triggered bonuses, Nortel fraud trial hears Page 1 of 3 © 2012 Factiva, Inc. Al rights reserved.Business Lies triggered bonuses, Nortel fraud trial hears Linda Nguyen The Canadian Press 87 words 28 September 2012 Victoria Times Colonist vte Final 86 English Copyright © 2012 Vietoria Times Colonist ‘Three former Nortel executives manipulated financial records to reap millions in bonuses, keeping the now insolvent tech tims investors and the public in the dark, court heard Thursday during closing arguments at the high-profile fraud trial “its a fraud on the public, that's the essence of the case against the accused," Crown attorney Robert Hubbard told the Ontario Superior Court, Ex-CEO Frank Dunn, exCFO Douglas Beatty and ex-controller Michael Gollogly are on trial fortwo counts of fraud each, All three have pleaded not guilty The Crown alleges these top players “tld les" so they could continue with a "BSGRIEYAaccounting scheme that made it acceptable to dip into reserves when quarterly financial targets couldnt be met ‘The motivation, court heard, was to trigger $12.8 millon In bonus payments for themselves - $9.7 milion in 2008 and $3.1 milion in 2001 - after showing an inaccurate return to profitabilty even though the Ottawa telecom company was struggling financially. ‘These deliberate efforts to conceal the “financial reality" of Nortel from the public amounts to fraud, said Hubbard, [The accused] were massaging the balance sheets for later,” he sald. "itis only by maintaining a bloated balance sheet that the accused could engage in cookiear accounting by using excess accruals to supplement earnings." Dunn, Beatty and Gollogly were fired from Nortel over the fraud allegations in 2004. Five years later, the telecom company declared bankruptcy in Canada and the U.S. At its height, Nortel employed 90,000 people worldwide and was worth nearly $300 billion. Ontario Superior Justice Frank Marrocco was told it doesrit matter whether the executives explicty told ‘employees to fudge the financial records. Everyone was already working under "context" or culture dating back to the 1980s that made it acceptable to do so, the Crown said It was an “everybody knows what needs to be done” culture, said Hubbard, “In this backdrop, in this culture, when you have forecasts ... you don't need instruction,” he said. "stretch targets excess accruals. @ given and the only way to meet them, with the financial realty of Nortel .. was through The Crown also does not need to provide evidence that external auditors trom DEISHENENTEUERE, who were brought in to examine the company’s finances, may also have been asked o ignore inaccuracies in the company’s balance sheets It only needs to show that the accused had created an environment where the accountants had no choice but to play with the numbers so Nortel's unreaHistc financial road maps and outlooks could be met, court heard, ‘The Crown also charged that the executives dismissed concerns ralsed by the auditors about the accuracy of the financial statements, and purposely kept the company’s financial targets from them. One of the specific allegations involves the release of only $20 milion of $189 milion in reserves during one quarter so it appeared the company was turning a profit, even though itwas in the red, Page 2 of 3 © 2012 Factiva, Inc. All rights reserved.‘The defence maintains that all the financial documents show is that errors were made. Lawyers representing the men could be seen shaking their heads a number of times in disagreement throughout the Crown's closing arguments ‘The defence also argues there Is no evidence the accused ever asked anyone to create false financial statements or orchestrated a so-called large-scale conspiracy among dozens of employees. No fraud could have taken place because the release of the accruals had been approved by outside auditors, they claim. Since the bankruptcy, the company has sold off US$3.2-billion of operating units - bringing the total value of the company's sell off to US$7.7-billon in one of the largest asset sales in Canadian history, Closing arguments by the Crown continue today, with the defence scheduled to present submissions next week ‘Tyler Anderson, National Post / Former Nortel CEO Frank Dunn leaves court in Toronto on Thursday; Document VTC0000020120928e89s00021 Page 3 of 3 © 2012 Factiva, Inc. Al rights reserved.